Don’t Buy This Market Breakout!

Breakouts are highly talked about technical setups amongst traders and investors. A lot of breakouts lead to great percentage gains. However, this has not been the case for the market in general. The S&P 500 has had a few major breakouts over the past few years, yet only really one or two have instantly led to great market runs.

Below is a weekly chart of the SPDR S&P 500 ETF ($SPY) with major breakout areas horizontally marked. I (liberally) defined breakout areas as spots (where the market made multi-year highs) in which the market had not been in awhile (like a few weeks minimum). As you can see, only one was a clean break and go (the breakout in early 2013).

Other breakouts were either not so clean (like the late 2010 breakout) . Most breakouts have failed (in terms of breaking above a price/price range and going without pulling back/correction). The last two breakouts have only set marginal highs and have not rewarded buyers. So if history is any precedent, do not buy this market breakout! It’s paid to be patient and wait for a pullback (especially to the very nice trendline that held multiple times over the past year!).

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

Jerry Khachoyan is currently an undergraduate student at UCLA pursuing a degree in Political Science. He started trading in September of 2008. He concentrates on using technical analysis and reading the tape to enter the best risk/reward trades. The stock market to him is one of the greatest inventions by man.

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This material is provided for informational purposes only, as of the date hereof, and is subject to change without notice.This material may not be suitable for all investors and is not intended to be an offer, or the solicitation of any offer, to buy or sell any securities.